To understand how we can address the needs of social innovators, we need to first understand the nature of the role they will play in spreading what works. Here at Root Cause, we believe that social innovation is the process of finding, testing, and honing potentially transformative ideas, practices, principles, and models of approaching social issues. Therefore, we need to first train social innovators to correctly assess and analyze social needs in order to enable their development of innovative approaches. Innovators, trained in social needs assessment and analysis, will be able to understand the complex nature of social problem solving, clearly articulate their vision of change and develop expertise on the social issue landscape.

This in turn will allow them to identify new opportunities for impact, define organizational roles, and develop innovative solutions with a focus on target beneficiaries. Finally, this capacity of social needs assessment will assist them in developing and articulating an approach and managing an organization to achieve its goals. But once these leaders have developed innovative approaches, how can we help them spread these models? In other words, how are we equipping them to advance social innovation?

Our work through the Social Innovation Forum shows that spreading proven approaches requires collaboration between nonprofits, philanthropy, government, and business as they move through the social innovation process. Thus, social innovators need to be trained in strategic collaboration, where they can Identify and develop key partnerships within and across social issues and sectors. These partnerships will facilitate the spread of innovative approaches via knowledge sharing about best practices and collaboration with similarly mission-aligned organizations.

However, this collaboration itself requires a platform like a social impact market. Therefore, effective social innovators understand how social impact markets operate. They can develop and implement a system to measure and communicate performance. Consequently, social innovators need to be trained to learn from performance, make data-driven decisions focused on continuous improvement, and effectively allocate resources based on performance.

If sustainable impact is a question of performance, leaders engaged in social impact need to measure their performance to maximize their social impact. This new generation of leaders will need to develop competencies in market assessment and analysis, building and sustaining organizations, engaging in outcomes-driven adaptive learning, and collaborating across sectors. Are our leaders ready for this? If not, how can we prepare them?

This past week, I explored how social impact markets can facilitate this role in a webinar hosted by Stanford Social Innovation Review based on my Winter 2012 article in the magazine. The webinar featured State Street Foundation’s Corporate Citizenship Vice President Sheila Cody Peterson representing the Youth Violence Prevention Funder Learning Collaborative, ACCESS CEO Bob Giannino- Racine speaking about his participation in Root Cause’s Social Innovation Forum, and Shawn Dove, the Campaign Manager for Open Society Foundations’ Campaign for Black Male Achievement. Through the conversation, it became even clearer to me that there are two ways in which a funder can be the key lever in ensuring the allocation of resources based on performance in a social impact market.

First, funders need to take the initiative to provide the infrastructure, information, and incentives required to direct resources toward performance. Created three years ago to align funding in youth violence prevention, State Street Foundation’s Youth Violence Prevention Funder Learning Collaborative stands as such an example of an emerging social impact market. Currently the collaborative consists of 45 private and 12 public funders, who are learning, sharing, and acting in a market-based approach. Yet the knowledge sharing goes beyond the collaborative since all the information is publicly accessible to any interested funder.

According to Sheila, one of the most important first steps was to identify strategy areas most in need of aligned funding based on research and on funders’ current giving priorities. The three areas—workforce development, youth development and mentoring, and family support and mental health—helped organize funders into working groups aligned around these strategy areas.

Within these working groups, funders learn about their area of focus, creating a common set of knowledge. They share funding expertise and learn to use this knowledge to align funding by developing funding tools, co investing, etc.

The funders invest in nonprofits based on shared views of prevention and by choosing outcome-driven practices they all agreed were necessary. Using the social impact market model, some funders in the YVP Funder Learning Collaborative have aligned $1.5 million in private investment, increasing meaningful employment experiences for over 900 youth in targeted communities where violence is highest.

Second, funders need to be willing to help programs build capacity to perform better and spread what’s working within the social impact market. Root Cause’s Social Innovation Forum played that role for ACCESS, a national nonprofit working towards removing the inability to afford college as a barrier to education. During the webinar ACCESS CEO Bob Giannino-Racine attributed the organization’s tremendous growth to the capacity-building support provided by SIF. Within the few years of working with SIF, ACCESS has gone from serving 2,734 students to serving 9,500, while securing $57.2 million in financial aid compared to $45 million before SIF. ACCESS went from an individual organization in need of support to piloting a training program in ten cities and expanding direct services in three others.

Shawn Dove, representing the Campaign for Black Male Achievement, reiterated this role of funders while discussing the work required to improve the lives of black men and boys. As an example, with 42 percent of all black boys failing an entire grade at least once, black male achievement is a challenge in need of a social impact market. He noted that there are thousands of programs working in communities across the country that are having results; however, there is currently no social impact market structure to organize the efforts, incentivize performance, and spread the impact.

Therefore, the challenge lies in the process of getting funders to take these two bold steps: data-aligned funding and provision of capacity building support so organizations can strengthen performance to improve lives. A striking example Shawn brought up was that there are currently many foundations that ask for performance data in their grant proposals, while very few of these actually give grants for measuring performance and evaluation. Sheila added that since not all nonprofit partners can provide outcome information in a cost-effective manner, the initial selection of performance indicators should be based on feasible and currently available indicators. The funders should talk to content experts to understand what indicators these nonprofits can feasibly measure while simultaneously supporting nonprofits to build capacity to evaluate their own impact.

All in all, the conversation brought to light the need to emphasize the role of funders in directing the flow of resources in a social impact market. The market approach pushes beyond collaboration as it allows a clearer way to allocate limited resources. As Sheila stated, funders need to move away from loose collaboration with individual areas of focus and a lack of sharing practices and knowledge toward strategic alignment that incentivizes performance and builds capacity.

Presented by: Andrew Wolk, founder and CEO, Root Cause

In Conversation with
Sheila Cody Peterson Shawn Dove, vice president of corporate citizenship, State Street Corporation

Shawn Dove, campaign manager, Campaign for Black Male Achievement, Open Society Foundations, US Programs

Bob Giannino-Racine, CEO, ACCESS

Date: Wednesday, February 29, 2012
Time: 11:00–noon PST, 2:00–3:00 p.m. EST

Click here to register

With more than a trillion dollars being spent annually on millions of American nonprofit and government institutions—and federal and municipal budget crises coming into full flower—the time has come for social impact markets. Social impact markets can foster innovation and collaboration across the governmental, business, and nonprofit sectors to maximize scarce resources and spread solutions. They are a funding mechanism for accelerating progress on critical issues at a time when we must do more with less.

Drawing on his Winter 2012 article in theStanford Social Innovation Review, Root Cause founder and CEO Andrew Wolk will explore examples of incipient social impact markets. Examples include the Social Innovation Fund administered by the U.S. government’s Corporation for National and Community Service, the Youth Violence Prevention Funder Learning Collaborative, Open Society Foundations’ Campaign for Black Male Achievement, and Root Cause’s Social Innovation Forum.

Wolk will discuss these efforts with Sheila Cody Peterson, vice president of corporate citizenship at State Street Corporation and director of the Youth Violence Prevention Funder Learning Collaborative, Shawn Dove, campaign manager for Open Society Foundations’ Campaign for Black Male Achievement, and Bob Giannino-Racine, CEO of ACCESS and a 2009 Social Innovator in Root Cause’s Social Innovation Forum. Expect a lively interactive dialogue with plenty of time for Q&A and debate.

This webinar will introduce a new approach to change and is recommended for foundation, nonprofit, social entrepreneur, government, and corporate professionals. In learning how to foster social impact markets, professionals in the sector can improve their effectiveness and help achieve greater social impact.

Click here to learn more

The panel discussion provided a number of insights for those who are interested in pursuing a partnership with your city’s mayor’s office. It is important to keep these things in mind before you arrange a first meeting with the mayor’s office. As Mayor Reed explained during the panel, he provides access to organizations with good ideas. However, it is important for him to be able to act quickly make decisions and finalize the partnership. Otherwise, he moves on.

As you prepare for a first meeting with a mayor, it is important to understand the mayor’s priorities and think strategically about how your project can support those priorities. The key is to explain how you can solve the problem the city has in a way that will help keep the mayor in office and cost less than any current efforts. Be specific about how your project is linked to the city’s current priorities, and how long it will take. Make sure your project has a timeline that works with the election cycle.  Above all, you will need to be able to measure the results of your work, in order to demonstrate outcomes and make improvements along the way.

For some of you, your mayor’s office will be new to conversations about performance driven partnerships. This is your opportunity to demonstrate how performance might be the new politics. Explain your project succinctly, and provide evidence of the results that you have achieved with past projects. In this way, you can help the mayor understand how collaborating with organizations that engage in performance measurement puts them ahead in a political context. Lastly, if the mayor is interested in building relationships with local community based organizations; make sure you mention that you are willing to partner with those organizations.

These are just a few things to keep in mind if you are considering pursuing a partnership with your city’s mayor’s office.  All in all, last week’s panel provided an inspiring conversation about public leadership that highlighted the importance of strategically designed partnerships that are aligned with the priorities of a mayor’s office and supported by performance measurement. Current examples of this work are making it possible to imagine a day when all resources for addressing social issues are allocated based on rigorous performance measures.

According to the RFR, Massachusetts will be exploring Pay for Success contracts in two social issues: chronic homelessness and juvenile justice. This statement represents a welcome shift in the way we approach social impact in two significant ways. First, it orients service providers towards understanding that in a particular social issue, it is a type of program model based on best practices that drives real change, not an individual organization. Second, focusing on common issues will allow the agreement between government and nonprofits working in that social issue area to use common indicators and common terminology related to outcomes. We at Root Cause, call this information alignment because focusing on an approach that works starts to align the terminology of all groups striving towards outcomes in that area. If we do not start calling the social issues by the same name – and realize that not individual organizations, but rather programs based on best practices produce a measureable outcome, how will we ever agree on what high performance is?  We were also pleased to see chronic homelessness selected in the RFR, as it is one of the eight social issue reports we have produced. It is also an area where we believe there is a great deal of evidence of what approach works effectively.

Another aspect of the RFR I really liked was that it does not assume a need for intermediaries to implement Pay for Success contracts. Instead it looks to intermediaries as a potential supplementary to support the initial Pay for Success contracts model if needed.  While I applaud the efforts of Social Finance, and am incredibly impressed by their laser focus on making sure this idea is successful, it is good to see an alternative experiment where government and nonprofit programs try to negotiate the terms of agreements without an intermediary. A huge concern in using the Social Impact Bond model was that it involved large levels of additional resources to even set up the payment structure. Thus, the absence of an intermediary might help the model be more scalable in an already resource-strapped environment.

Thus, with the RFR milestone comes a larger hill that we still have to climb: reallocating current government funds to social programs engaging in the pay for success model, without raising additional money from outside sources in a time of austerity. It will not be easy to renegotiate the terms of the billions of dollars being spent currently and to reallocate this money to programs in chronic homelessness and juvenile justice that engage in new Pay for Success contracts. However, if we are truly going to make progress, we need to head towards a performance-based allocation of resources. The announcement this past week is a step in the right direction. I am hoping we will now see more experiments that don’t just rely on increasing philanthropy, but instead focus on the assessment of how current government funds are being allocated to programs across different social issues.

Illustration: Shannon May

I have been asking myself this very question since the day I sold my business in 1997 and decided to devote my career to making progress on social issues. While I am still certain we must do a better job in building a system that allocates resources towards performance and while I am clearer on what does not work, I am much less clear on what does work. At one point in my career, I thought making social progress was simply a matter of finding a great leader and giving these leaders more resources and tools. However, we have “scaled” organizations with great leaders; but that has made only a little bit of progress. For example, take a certain national nonprofit that has been working to increase college enrollment rates. Although in the eight years from 2000 to 2008, the organization grew by 750 percent, serving more than 17,000 students, it estimates that it will only reach about 2 percent of the 1 million low-income high school students in the United States. Why is this the case? Why are we not reaching the other 98 percent? What we need is a lot of progress.

At another point, I also thought making social progress might simply be a matter of providing greater transparency on particular social issues and on what’s working so that people with resources will make more rational decisions on how to allocate those resources. However, we have seen that allocating resources based on data is only one, and often not the primary driver of decision-making. Adding to this problem is that we have much less data then we thought. In fact, through our Social Impact Research (SIR) division, we have seen that in social areas like School Readiness, there is currently no available data to demonstrate aggregate program success rates since the outcome data is tracked only at an individual level based on teacher observation of students. According to the top four developers of curricula and assessment tools, the individual data cannot be aggregated to accurately show program-wide results. Additionally, the accuracy of the teacher assessments themselves varies greatly with a teacher’s level of training on assessment tools, thus supplying very little reliable data to track aggregate outcomes.

So I keep asking myself why? Why can’t we spread what works faster? Some would argue that it is simply a matter of political will—with the right policies in place progress would be faster. However, I continue to dispel that notion. We have had plenty of policies during the terms of both Republican and Democratic administrations in D.C., and in various other cities, and states that have allocated plenty of resources towards plenty of programs without creating much progress. Instead, I continue to believe that we need to do a much better job of allocating resources based on performance. I continue to believe that we need to strengthen the social contract between the people who make the policies, the people who allocate the resources, the people who deliver the programs, and the populations they seek to help. In the end, we are either providing a better outcome for them or not. If not, we must ask why not!

Photo: Creative Commons

A Social Impact Bond or a Pay-for-Success bond is an investment model where the government enters into a contracting position with an intermediary that raises private funds to finance the operations of nonprofits driving social impact. It is at this intersection where performance measurement becomes relevant. The government will pay the investment back with returns ONLY if the nonprofit in question delivers the pre-defined objectives (as judged by an independent evaluator). Therefore the government’s biggest incentives in engaging in this model are the limited liability it takes on and the fact that no tax dollars are wasted on programs that don’t generate government savings. Thus, the government is accelerating the adoption of new approaches while shifting the burden of risk on to private investors. As Jeff mentioned in the panel, this system also builds “evaluation into the DNA” of the government because funding can now be directed to those organizations that have proven to be successful.

On the other hand, philanthropy through SIBs is taking the form of a private sector instrument because these bonds are now seen as investments, with a tax treatment that is no longer under charitable contribution. In this model it is private philanthropists who are the investors providing funds to finance the operations of collaborating nonprofits and who can expect to see real capital gain or loss depending on the performance of the nonprofit. What do these returns look like? According to Tracy, although it’s too early in the US model to be able to throw out a concrete number, the UK recidivism model saw returns in the range of 2 – 13% net IRR after recidivism was lowered to a certain pre-defined threshold. As expected, the investors were mostly philanthropically motivated private foundations using a portfolio outside its grant-making corpus.

In simplest terms, the SIB or “pay for success” model rewards proven innovations while simultaneously allowing investors to get more social impact out of every dollar. However, the discussion raised a few clarifying questions and potential caveats about the implementation of this model. For example, what kind of nonprofit organizations are suitable to use this tool and what challenges will they face? Additionally, given how much resources will be required for the implementation is this the best way to utilize our already limited resources?

In talking to Jeff and Tracy about how SIBs will impact nonprofits, I understood that the organization ideal to work within this model will have an organizational structure with proven success, experience with measuring impact and the ability to scale. However more importantly, the SIB model would require not one single nonprofit but rather a network of nonprofits providing a multitude services.  For example in the UK SIB model working to reduce recidivism, there was a team of NGOs providing a range of services starting from finding jobs for the prisoners to working with their families. The objective is not to provide one service better but to stabilize lives, which in turn requires collaboration.  Therefore, this is not an easy model to pilot, let alone scale.

Additionally, Jeff noted that SIBs are not ideal for services with a high cost-benefit ratio. This model is not the right way to fund a majority of social services and is instead more suitable for services where the benefit-cost ratio is 2 and that deliver a high return on investments while having outcomes that are measurable. Finally, these programs should also be supplementary to a larger program or have safeguards against failure so that there would be no huge impact if the program fails.

The SIB model presents certain challenges to nonprofits themselves. Lisa from My Life My Choice raised the question of validity in impact assessment and performance measurement. With the amount of ambiguity shrouding the progress in social impact, who decides which results are valid and what do good outcomes look like for organizations like MLMC? Furthermore, since the effectiveness of the SIB model depends on the amount of government savings the proven nonprofit can generate, there needs to be better definition as to how existing efficiencies are being recaptured. Using the example of Medicaid, Joe Finn from the Massachusetts Housing and Shelter Alliance asked when a program is proven to have created certain efficiencies, how willing were people going to be to provide a financial return to philanthropic investors and how much?

Another growing concern among nonprofits is whether the SIB would cannibalize current grant making activities and further limit the already scarce resources available and where does the idea of reduced risk becomes reduced responsibility on the part of the government? Tracy responded by saying that both foundations and individuals are looking at SIBs as investments. Positive returns on SIBs will constitute long-term capital gain and is a different tax treatment from a charitable deduction. Hence, SIBs are no longer a segment of philanthropy and belong to a different source of money. In fact from the evidence gathered from the UK model, it seems that foundations have been leveraging a pool of money that is outside the grant portfolio; thus introducing a new pathway for NGOs to access capital to fund and scale their work while generating future recoverable government savings.

Given all this, I wondered whether this was a good allocation of resources to get government in a better contracting position with nonprofits? The answer, so far, is yes – because the incentives are in the right places. Firstly, it provides an incentive to government to allocate social service dollars through performance measurement checks with minimal risk. Secondly, it creates an incentive for organizations to measure outcomes because in a few years there will be evidence that program evaluation can in fact attract significant funding.  Lastly, it creates an incentive for private investors to allocate their resources and now receive a nominal return.

SIB’s are creating conversations between government and nonprofits that in the past have been difficult to get going.  Despite the uphill battle to get SIB’s off the ground, this tool has many positive implications beyond just the goal of doing more with less.

Illustration: Shannon May

Over the past few years, Root Cause’s Social Impact Research department, with support from the William and Flora Hewlett Foundation, has developed a methodology for identifying high-performing organizations that takes knowledge of what the proven approaches are for a targeted social issue as its starting point. Through the development of social issue reports covering a wide array of issues—from school readiness to childhood obesity prevention to workforce development with opportunities for advancement for adults facing multiple barriers to employment—we have seen increasing evidence of the benefits of starting with an understanding of the social issue, specifically what research tells us are the best approaches to make progress on that issue in order to evaluate an organization’s current and future performance.

For example, we recently completed a social issue report for funders interested in the area of school readiness. Our research for this report revealed that the most successful programs follow an approach that includes three core components: an education-based curriculum, support services for parents, and complementary services (e.g., social services, medical health benefits) designed to prevent negative life outcomes for at-risk children. Furthermore, we found that some of the best indicators for evaluating the performance of organizations pursuing such an approach include use of a certified curriculum, assessment tools related to student development, and level of parental involvement.

With such information in hand, it became possible to determine which programs are most effective in realizing their stated goals. In our own analysis of more than 1,700 childcare centers in New York City using publicly available information, we found that only 17 percent met our minimum criteria of being nonprofit, serving at-risk children, and incorporating the three core components of the proven approach. The vast majority were not employing the methods that current data show to be the most effective. What is even more alarming is that in interviews, we were told that organizations that are not using proven approaches could at times actually be having a negative impact on the children they serve.

Such information about proven approaches also provides a rigorous framework for evaluating the potential of early-stage social innovations to lead to greater progress in addressing a given social issue. It makes it possible to understand how a new approach is positioning itself to fill in current gaps or to outpace current best practices.

The enormous potential of a social issue-based approach to evaluating programs is illustrated by the information revolution that took place in the private sector during the twentieth century. One of the innovations that increased transparency at the time was the development of an independent financial research industry. Reports, conferences, and advice began to be offered by the likes of the Yankee Group, Forrester, and Gartner Research. That information, in turn, provided investors with the insights they needed to make informed investment decisions and greatly increased the amount of growth capital available to technology companies, both young and established.

If we are to significantly improve our nation’s capacity to address social problems, we need to ensure that our resources are going to the approaches that will likely demonstrate the best results – and to the innovations that have the greatest potential to make further advances. Only by starting with an understanding of the social issue and the best approaches to address those issues can we accomplish this.

The Social Innovation Fund could set in motion a similar information revolution within the nonprofit sector by requiring intermediaries this year to use information about proven approaches as a guide for how they make investments. The information about specific social issues could be broadly shared with funders and nonprofits alike to catalyze the revolution.

As 2010 draws to a close, I have found myself reflecting on the journey that the field of social innovation and entrepreneurship has experienced.

In February of 2011, Root Cause will celebrate its seventh birthday. It is amazing to me to consider how far we have come as a community working to advance the field of social innovation and entrepreneurship.

Here are some of the developments that I believe we, as a field, can be proud of:

• Social innovation is continuing to capture the attention of new stakeholders in nonprofits, philanthropy, government, and business. When I started Root Cause seven years ago, social innovation and entrepreneurship were a set of ideas about how to improve our approach to social problem solving shared by a small community of nonprofits and philanthropists. Perhaps the most prominent illustration of that community’s growth over the past several years is the existence of a White House Office of Social Innovation that is working to raise the profile of our field and helping communities spread effective approaches and invest in what works. Also, the emergence of America Forward, a coalition of innovative nonprofits, funders, and thought leaders in the field of social innovation has helped to ensure our voices are continuously heard—so that we can support important federal activities, such the creation of the Obama Administration’s Social Innovation Fund, while building champions on both sides of the political aisle.

• We are beginning to understand the importance of collaborative efforts to target tough social issues. Seven years ago our field’s focus  was on supporting and scaling individual organizations with approaches that had the potential to make significant progress on tough social issues. While building organizational capacity remains critical, the recent flood of studies, grant opportunities, and conversations focused on collaboration shows how much our thinking has matured. As John Kania’s and Mark Kramer’s recent article on “Collective Impact” impressively analyzes, no one organization has the resources, knowledge, and influence to tackle a social issue on its own. As I argued in a recent article on government’s role in collaboration that appeared in MIT’s Innovations journal, we need to target social issues collectively, and to coordinate our efforts on the programming and the funding side. One of the shining examples of this approach is the Youth Violence Prevention Funder Learning Collaborative started in Boston by the State Street Foundation.

• We have also begun to experiment with new ways to produce and distribute more rigorous and actionable information that will help us to understand the root causes of social issues, the best approaches to addressing them, and the programs that are demonstrating the best results.  Through Root Cause’s Social Impact Research initiative, we have become part of a committed community of researchers and information providers—including Charity Navigator, GuideStar, GiveWell, and Philanthropedia—that are working to improve the quality and availability of information to help guide decision-making about philanthropy.

As I look ahead to 2011, I believe that the United States is at a crossroads. The future of our society’s health and ability to advance depends on tackling our toughest challenges in education, health, job creation, and environmental sustainability. In an era of limited resources in which we must do more with less, it will take entrepreneurial and innovative leadership from all three sectors of society—public, nonprofit, and business—working together to better invest taxes and philanthropic dollars, as well as to better utilize markets in more creative and strategic ways.  Ultimately, we will need to form healthy social impact markets that enable us to direct financial, volunteer, and in-kind resources to the approaches that are demonstrating results.

I look forward to continuing the journey with you in the new year.

The emergence of “social innovation” as the term that has gained mainstream attention is not surprising. For decades, “innovation” has been a glamorous term used by business and government to excite business leaders, entrepreneurs, and the general public to think about the future with hope. Social innovation has leapt into the spotlight for many of the same reasons. When it comes to today’s social issues, we face large challenges, many of which have persisted for decades, and the idea of social innovation give us hope for a new way to solve old problems.

But turning that hope into measurable progress on our toughest social challenges is going to require discipline–to ensure this attention brings true change. In other words, now that we have firmly established social innovation as a possible way to generate greater solutions, the big question becomes: what do we need ensure this focus on social innovation works?

In the end, social innovation must be about ensuring that more resources are allocated to what works, in order to accelerate our solutions to the tough social issues that we face now and those that will arise in the future. One of the lessons of the efforts to address social problems in the United States in recent decades, I believe, is that no one sector has the resources and the knowledge to tackle today’s social issues alone. We need to create what I would call a social impact market that enables greater collaboration across sectors and social issues–in order to foster innovation and direct resources towards the most effective approaches. How do we realize this new kind of market? I believe the answer lies in the development of cadre of leaders from all sectors that fundamentally commit to fostering social innovation to ensuring that resources are allocated based on performance. We need great champions from the three sectors to become models for hundreds of thousands of others. A colleague of mine recently said, “When a challenge to a system has reached mainstream, the next stage of its evolution is to ensure there are enough well-trained leaders to make that system stick.” Perhaps that is part of the story that will unfold in the next chapter of social innovation.